An increasing amount of merchants and non-merchant payment services offer consumers the ability to store payment account information for later use (referred to as ‘card on file’) making purchasing items and paying bills much easier. By storing payment account information with the merchant or a third party non-merchant processor it is not necessary for the consumer to enter their payment account information each time they submit a payment. In some cases, storing a card on file allows consumers the ability to make payments with a simple click of a button. However, in a card on file transaction, the card is not present which creates a greater chance of fraud.
In an effort to reduce fraud with card not present transactions, a Card Verification Method (CVM) code may be requested by a merchant. For example, the CVM code may be a CVC2 for MasterCard, CVV2 for Visa, CID for American Express, and the like, and is typically a three or four digit number located on either the front or the back of a payment card. In particular, a merchant may request entry of the CVM code during to verify that the payment account information is being input by someone in the presence of the actual payment card. In most cases, issuers will reject a transaction where the CVM does not match the card number.
The effectiveness of a CVM code is limited to the ability to keep the code away from fraudsters and/or criminals, which is why the Payment Card Industry (PCI) prohibits a CVM code from being stored by a merchant. That is, the merchant is allowed to use the M code during an initial transaction but the merchant cannot store the CVM code for future transactions. Accordingly, a card on file transaction typically does not include the CVM code. As a result, a card on file transaction are at greater risk of being declined by issuers.
Another type of card not present transaction is a recurring payment transaction. A recurring payment (RP) transaction is a transaction made pursuant to an agreement between a cardholder and a merchant whereby the cardholder authorizes the merchant to bill the cardholder's payment card on a periodic basis, such as monthly, quarterly, annually, or as needed without a specified end date. Each payment may be for a variable or a fixed amount. Typically, a recurring payment transaction includes a recurring payment indicator which marks the transaction as a recurring transaction. When a transaction is marked as a recurring transaction, many issuers might still approve the transaction even if a payment account expiration date is invalid or expired.
Recently, however, merchants have begun using the recurring payment indicator incorrectly in an effort to indicate that payment account information for a transaction is already on file. In some cases, even merchants that do not offer payment through a recurring business model have been utilizing the recurring payment indicator. While the incorrect use of the recurring payment indicator may result in higher transaction approval ratings, it may also result in a higher amount of fraud. Also, there are many transactions in which a card on file may be used but which are not subject to payment through recurring payments, for example, purchases for goods and services at non-regular intervals.
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